Southern Fidelity the latest insurer to get ratings downgrade

Hand holding a piece of wood block with model white house on dollar banknote. Insurance and property investment real estate concept.
Southern Fidelity has suspended policy renewals in Florida.

Southern Fidelity Insurance Company had its financial stability rating pulled on Monday, signaling another batch of homeowners will need to seek property insurance elsewhere.

Demotech, a consulting company that rates the financial health of insurance companies, pulled its rating for the company on Monday and now lists it as “not rated.”

“Southern Fidelity Insurance Company advised its agents that it had suspended new and renewal business for all lines while it attempted to complete its reinsurance coverage for the 2022 hurricane season,” Demotech wrote in a statement announcing the rating withdrawal.

“After completing our review of first quarter 2022 financial statements and considering that the Company’s reinsurance coverage for the 2022 hurricane season is not complete as of June 2, 2022, Demotech has withdrawn the Financial Stability Rating previously assigned to Southern Fidelity Insurance Company.”

Southern Fidelity is one of several Florida insurers to have had its rating withdrawn or downgraded by Demotech in recent months. In January, the firm downgraded four insurers. In February, St. Johns Insurance Company and Avatar Property & Casualty Insurance Company had their ratings withdrawn, just a few days after United Property Insurance and Lighthouse Property Insurance lost their ratings.

The companies collectively insured hundreds of thousands of homeowners. St. Johns’ was the eighth-largest property insurer in the state with a portfolio of 177,000 policies.

Additionally, FedNat Insurance Company, for instance, had its rating lowered from “A” to “S” in late April. Though an “S” rating — or “Substantial” — is not considered negative according to Demotech’s description, its effects on policyholders are functionally similar since many major mortgage lenders, including Fannie Mae and Freddie Mac, will not accept policies from companies that do not maintain an “A” rating or higher.

Outcomes for other policyholders have varied. Slide swooped in and absorbed most of St. Johns’ policies, while Lighthouse and Avatar later entered receivership — a financial action in the same vein as bankruptcy but which protects the interests of creditors rather than debtors. Many of their customers will likely end up securing coverage through the state-backed Citizens Property Insurance Company.

Southern Fidelity’s ratings withdrawal comes two weeks after lawmakers held a Special Session on property insurance.

The resulting bill, signed by Gov. Ron DeSantis, includes numerous provisions aimed at stabilizing the market, including a $2 billion fund backed by state taxpayer money to allow insurance companies to receive reinsurance, which has become more expensive for most companies. For others, it’s become difficult to obtain even at a high price.

The measure also seeks to curb claims litigation, which many insurers claim is a key driver of rising premiums.

However, even lawmakers who championed the bill have cautioned that policyholders are unlikely to see lower premium prices in the near term.

Drew Wilson

Drew Wilson covers legislative campaigns and fundraising for Florida Politics. He is a former editor at The Independent Florida Alligator and business correspondent at The Hollywood Reporter. Wilson, a University of Florida alumnus, covered the state economy and Legislature for LobbyTools and The Florida Current prior to joining Florida Politics.


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